Monday, November 22, 2010

Oh, yeah...

I told you I would mention my observations after the Elite Producer Business Conference. (Thanks, JR)

In no particular order. [Hey - your mind will work this way too someday.]
  • The pressure on California dairies is intense. Water may be the biggest threat, but producers are really nervous about immigration issues.
  • Cheese consumption is exploding.  Although it wasn't mentioned it is also being noticed by obesity experts. There is a lot of fat in cheese.
  • Food retail at all levels are cutting the number of items (SKUs) pretty sharply.  We may only have 48 kinds of corn flakes.
  • Traditional supermarkets (e.g. Kroger) continue to lose ground to supercenters and discount clubs. The concentrates buying power even more intensely into fewer hands.
  • Dairy at retail is the most profitable sector in the supermarket, but frequently is constrained by its floor space due to being crammed onto outside walls. More retail info here.
  • Yogurt is the dairy product of the near future.
  • Every speaker I heard had a remark about "biofuel" policy.  Not a happy comment either.
  • Regional banks are looking for the exit on large dairies, according to some.  Where that capital will be replaced is a big question.
  • I talked to one 500-cow guy who is seriously considering shrinking back to just his very profitable breeding business.
  • A presentation by the Ohio animal welfare coalition left many producers glad their state doesn't have initiative power for voters.  Many producers are already getting ready to comply with stricter handling rules.
  • Dairy is the poster child for the productivity curse. From breeding technology likes sexed semen to robomilkers, every advancement makes overproduction just a little easier.
  • Policy outlook seemed to be "something's gotta change".  Frankly my eyes glazed over during the pricing support discussions.  They were pretty realistic about maybe less aid would actually be less distortionary.
Overall, I felt a grim determination in the face of a very difficult outlook.  While looking for markets overseas, local economic/regulatory conditions seemed to be the forest fire of the moment.

If I remember anything else, I'll update this post.


Anonymous said...

Was waiting for the summary--what does this leave this industry looking like in 10 years?

John Phipps said...


As near as I can guess from the speakers, much like the hog industry.

JR said...

Thanks John most interesting.
All in all what I have been hearing all along.
I talked with a Farm credit guy the other day he said they weathered the last downturn ok but they definatly couldn't do it again. and then he said again is right around the corner!
I don't know the future but it sure helps me when I don't compare myself to my cash cropper friends. I keep hoping that we will rise to their level. But when I talk to them they are more concerned they will fall to ours!
I don't necessarily agree with the outlook that we will go the way of the hog business as they vertically integrated during a time of cheap corn prices and cheap fuel prices.
Now we have high priced corn which hampers our ability to buy feed cheaper than we can grow it. Also with the changing finance structure we see that very large banks ( like Rabo) are even desiring to get out.
Also do you think with Deans and Krafts very poor performance over the past year that they have any reason to buy into a dairy facility when they are going to incur more loss than buying product below cost of production?
As you move up the food chain to the discount centers or super big grocers why would they want to share the pie with the producer when it is the biggest piece of profitability that they have? In fact it could be said that without dairy and cheap food that their business model is a loser for sure.
SO all these things mean to me that eventually it will return to the family farm ( size only dictated by the size of their family in other words Catholics and Amish may have a prodigy advantage) producer.
They may actually be the most efficient now. Especially if they have the land base.
Thanks for making me think.